I don't tend to add to my largest positions, but I did exactly that -- twice -- last week with Roku (ROKU -2.67%). I've been a Roku since early 2018, back when the investing community mistook the streaming video pioneer as merely a low-margin hardware player. A year later I was the first one to get it recommended in one of our newsletter services. Despite the stock's recent slide it has still nearly quadrupled for those newsletter subscribers.

I bought some more shares of Roku personally on Tuesday, with the stock trading 44% below its July all-time high. I did something even more unusual, making another purchase the following day when the shares continued to plummet following an analyst downgrade. 

Is this 2018 or even 2019 all over again? Am I seeing the bullish case that the rest of my fellow investors are dismissing or am I about to get sliced for trying to catch a falling steak knife? Let me count out the reasons I think Roku will bounce back.

someone channel surfing while reaching for some popcorn.

Image source: Getty Images.

1. We've been here before

Sharp corrections and even outright crashes are par for the course when it comes to Roku. It seems as if the boo birds come out in force every full year since it went public in the latter half of 2017. 

  • In October 2018, the stock traded as high as $77.57. It fell as much as 61% when it hit $30.64 two months later.
  • The stock hit an all-time high of $176.55 in Sept. 2019. A month later it dipped briefly into the double digits for a 43% plunge. 
  • Roku shares had recovered to trade as high as $151.20 by Feb. 2020. They would plummet 61% before bottoming out at $58.22 a month later. 
  • This year's annual crash finds the stock falling 52% to Friday's low from its all-time peak of $490.76 just four months earlier. 

We've had the stock drop between 43% and 61% from previous yearly highs. This may not sound like much of a selling point. This is what the worst stocks do on the way to irrelevance. However, the important distinction here is that Roku has also hit a new all-time high every year. 

  • 2017: $58.80
  • 2018: $77.57
  • 2019: $176.55
  • 2020: $363.44
  • 2021: $490.76 

The streak will continue into 2022 if the stock pops better than 109% before the end of next year. All good runs must end, of course, but Roku has a way of rewarding the patient in times of turmoil.

2. Roku is a market leader in a booming industry

We're still early in the streaming revolution, and Roku is still growing. The 56.4 million active accounts it had at the end of September are 23% more than it had a year earlier. Platform revenue has soared 82% over the past year, as that uptick in viewers is stacked on top of a 49% year-over-year improvement in average revenue per user. 

This is a competitive niche, but Roku remains dominant as a pioneer with an agnostic bent that consumers and smart TV manufacturers love. I/O Fund's Beth Kindig -- easily one of the market's best tech stock pickers and a fellow early bird on Roku -- laid it out perfectly when the shares were cascading last week.

3. This isn't an earnings story -- until it is

The amusing thing about an analyst downgrade being the latest sell-off catalyst isn't lost on me. Wall Street pros have been serial low ballers for years when it comes to Roku. The last year is indicative of how badly analysts are missing the big picture. 

Quarter EPS estimate EPS actual Surprise
Q4 2020 ($0.05) $0.49 1,080%
Q1 2021 ($0.13) $0.54 525%
Q2 2021 $0.12 $0.52 333%
Q3 2021 $0.06 $0.48 700%

Source: Yahoo! Finance.

Bears would argue in the past that Roku isn't a bottom-line story to justify their continuing skepticism in light of blowout earnings, and they're right. However, they're changing their tune now that Roku is facing some serious margin pressure with supply chain constraints and rising input costs on the hardware front. Profit growth will be marginal for the next few quarters, but no one expects the headwinds to be anything more than transitory. Even in this gloomy near-term scenario, analysts see Roku earning $1.58 a share this year and $1.62 a share in 2022. Remember what we learned about serial low ballers. 

Roku continues to be a smart way to play the streaming service stocks market. It's a basket that rides the winners while also cashing in on the boom in connected TV advertising. New initiatives to push for original programming will boost engagement and retention. 

Roku stock is crashing? Been there. Bought that. Let's meet up again next year to do it all again at higher price points.